use.
PSEG, New Jerseys leading energy company, is tackling this issue aggressively.

There is no simple or short-term solution to address global climate change. Immediate
action on a multi-pronged approach is required. There are three critical strategies that
New Jerseys energy industry must employ to help meet this challenge:

Conservation through energy efficiency improvements.
Development of

renewable energy resources.
Clean, zero- and low-carbon

central station electric generating capacity.



Conservation

Initiatives to conserve energy can have a measurable and immediate impact on reducing
both CO
2
emissions and customers energy bills. In the near term, conservation has an
unmatched potential to address climate change through high-impact, low-cost
investments. PSEG is prepared to make significant investments to reduce electric and
natural gas demand over the next five years. Investments in conservation and efficiency
must be treated by both providers and policymakers as investments in critical sources of
energy.

Renewables

Renewable energy supply must be part of the climate change solution. The state faces
particular challenges in developing solar and wind resources because of geographic and
weather-related limitations in New Jersey
1
and because solar generation and wind-
powered electric generation are intermittent energy sources. As a result, the cost of such
generation is much greater than conservation measures and central station supply.
Financial incentives are needed to spur research, development and deployment of these
resources.

2

Central Station Power Generation

New, zero- and low-carbon power plants

will be required to meet energy demand and
assure the reliability of the electric system. Coal-fired electric generation technologies
are being researched and developed to improve the efficiency of the combustion process
and to capture and store carbon, but this technology is not well-suited for New Jerseys
geology. New Jersey will need to invest in expanding nuclear power, which is the most
economic source of carbon-free electricity supply under current market conditions.
Because new nuclear power will take at least ten years to come online, new nuclear
generation options need to be investigated now and will require state and federal support
to address regulatory and siting risks involved in the process.

The Challenge Ahead

Governor Corzine and his Administration have provided strong leadership in seeking
greenhouse gas (GHG) reductions through the Energy Master Plan (EMP), Executive
Order 54, and through participation in the Regional Greenhouse Gas Initiative (RGGI).
All of the strategies referenced above conservation, renewable resources, and low- and
zero-carbon central station power generation will be required to meet the states
objectives. Regional and state-specific CO
2
reduction policies can serve an important
role as catalysts for private action and federal policy, but they must be crafted to
maximize the intended environmental benefit and to minimize the economic burden on
New Jersey consumers and energy providers.

To make progress in combating climate change, action cannot be focused solely on the
energy sector. Transportation is New Jerseys largest source of CO
2
emissions from
human activity, estimated to account for 50 percent of emissions,
2
and must be included
in a CO
2
reduction strategy. In comparison, electric power accounts for approximately
14% of CO
2
emissions in New Jersey. Policymakers should encourage greater use of
hybrid electric vehicles, and as the technology matures, promote the deployment of
plug-in electric hybrid vehicles (PHEVs).

PSEG will apply its expertise and capital in new ways to reduce energy demand, spur
investment in renewable resources and develop new sources of carbon-free supply. This
transformation of the energy business requires heightened collaboration with state and
federal policymakers. Innovative legislation, regulations and funding mechanisms will
be necessary to establish markets for new technologies, spur investment and create

employment opportunities. PSEG will do its part as a leader in the energy industry and
responsible corporate citizen, working closely with other stakeholders to tackle the most
important environmental challenge of our time.

*******************************

3


PUBLIC SERVICE ENTERPRISE GROUP (PSEG):

ADDRESSING NEW JERSEYS CLIMATE

AND ENERGY CHALLENGES


Understanding the Challenge

Governor Corzines GHG reduction objectives require significant contributions from all
sectors of the economy in New Jersey. In Executive Order No. 54, Governor Corzine
established goals to reduce GHG emissions to 1990 levels by 2020, which will require

a
20 percent reduction equal to approximately 46 million tons annually of CO
2
. The
Executive Order further requires an 80% emissions reduction below 2006 levels by 2050.
The passage of the Global Warming Response Act of 2007 supports the implementation
of key elements of the Executive Order.

Key to achieving these objectives is the development of the

new Energy Master Plan
(EMP). In announcing the plan, the Governor set additional and related

goals of

reducing
electric consumption in the state 20% by 2020 and meeting 20% of the electric energy
supply requirements through renewable resources by 2020. Approximately 1,200
megawatts of the renewable energy target

are expected to come from in-state solar
photovoltaic (PV) installations.
3


The Electric Power Research Institute (EPRI) has identified a range of potential solutions
available to the electric power sector for reducing national GHG emissions.
4
EPRI has
estimated the potential technical feasibility of solutions -- including efficiency,
renewables, nuclear generation, advanced coal generation, carbon capture and storage,
and other new technologies -- in contributing to carbon reduction targets over the next
few decades. A few of these technologies, notably carbon capture and storage, hold very
little technical promise in New Jersey due to geological constraints and, therefore, the
other solutions will need to be developed and relied upon more significantly in our state.

As illustrated below, the EPRI analysis indicates that energy efficiency and renewable
initiatives alone will not be sufficient to yield the aggressive carbon reductions needed by
society and sought by Governor Corzine. New Jersey will need to employ a combined
approach of conservation/energy efficiency, renewable energy, and zero- and low-carbon
central station power, along with significant reductions in the transportation sector in
order to achieve substantial reductions in emissions.
5







4



EPRI Assessment of United States Greenhouse Gas Reduction
Opportunities in the Electric Power Sector



EPRIs findings are consistent with the "New Jersey Energy Efficiency and Distributed
Generation Market Assessment" final report submitted

to Rutgers University Center for
Energy, Economic and Environmental Policy by Kema, Inc.
6
The Kema study found that
among the potential sources of electric demand reductions from the 2020 business as
usual electricity usage, 17% of such sources are technically possible; 11% are
achievable with considerably more funding; and 5% are likely achievable based on the
performance of current programs. Consequently, creative and aggressive initiatives are
necessary to change the trajectory of carbon emissions

in New Jersey.

Just as different policy solutions offer different levels of technical feasibility, the costs of
the solutions vary significantly. Not all carbon abatement programs have similar costs.
McKinsey & Company recently completed a study of the GHG abatement opportunities
in North America and identified a range of options, beginning at relatively low-cost
options, such as energy efficiency and vehicle fuel efficiency, and then moving higher in
cost to nuclear and hydroelectric power, and then to higher cost options such as wind,
solar, and carbon capture and storage technologies.
7


5

Energy costs to consumers will likely increase as a result of transforming the energy
supply mix in New Jersey to rely more on zero- and low-carbon sources, including
renewable supply alternatives. Such costs will reflect the societal benefits of reducing
carbon emissions and building a more sustainable energy and economic future.

PSEG: Catalyst For Change

PSEG is ready to make investments that can be catalysts for low-carbon and carbon-free
supply technologies. However, given the technical and cost challenges of realigning the
power mix in New Jersey to achieve a much lower-carbon footprint, PSEG must realize a
fair return on these investments. PSEGs public utility subsidiary, PSE&G, has the
ability to invest capital on a long-term basis if it is allowed a reasonable regulated return.
Regulated utilities have historically been efficient vehicles for capital deployment in
pursuit of initiatives yielding broad societal benefits.

PSEG proposes a three-pronged strategy for reducing high-carbon reliance in New
Jerseys energy sector: Conservation, Renewables and Clean Central Station Power
Plants.

Conservation: Reducing Energy Demand

Conservat